Subdivision 1.

Powers and duties.

The commissioner shall have and exercise
the following powers and duties:

(1) administer and enforce the assessment and collection of taxes;

(2) make determinations, corrections, and assessments with respect to taxes,
including interest, additions to taxes, and assessable penalties;

new text begin (3) administer the tax laws according to the substance of a transaction, not the form
of a transaction; in administering these laws, the commissioner must disregard the tax
effects of a transaction that does not have economic substance and nontax purpose;
new text end

deleted text begin (3)deleted text end new text begin (4) new text end use statistical or other sampling techniques consistent with generally accepted
auditing standards in examining returns or records and making assessments;

deleted text begin (4)deleted text end new text begin (5) new text end investigate the tax laws of other states and countries, and formulate and
submit to the legislature such legislation as the commissioner may deem expedient
to prevent evasions of state revenue laws and to secure just and equal taxation and
improvement in the system of state revenue laws;

deleted text begin (5)deleted text end new text begin (6) new text end consult and confer with the governor upon the subject of taxation, the
administration of the laws in regard thereto, and the progress of the work of the
department, and furnish the governor, from time to time, such assistance and information
as the governor may require relating to tax matters;

deleted text begin (6)deleted text end new text begin (7) new text end execute and administer any agreement with the secretary of the treasury or the
Bureau of Alcohol, Tobacco, Firearms and Explosives in the Department of Justice of the
United States or a representative of another state regarding the exchange of information
and administration of the state revenue laws;

deleted text begin (7)deleted text end new text begin (8) new text end require town, city, county, and other public officers to report information
as to the collection of taxes received from licenses and other sources, and such other
information as may be needful in the work of the commissioner, in such form as the
commissioner may prescribe;

deleted text begin (8)deleted text end new text begin (9) new text end authorize the use of unmarked motor vehicles to conduct seizures or criminal
investigations pursuant to the commissioner's authority;

deleted text begin (9)deleted text end new text begin (10) new text end maintain toll-free telephone access for taxpayer assistance for calls from
locations within the state; and

deleted text begin (10)deleted text end new text begin (11) new text end exercise other powers and authority and perform other duties required of or
imposed upon the commissioner by law.

Subd. 3.

Corporations.

(a) A corporation that is subject to the state's jurisdiction to
tax under section 290.014, subdivision 5, must file a returndeleted text begin , except that a foreign operating
corporation as defined in section 290.01, subdivision 6b, is not required to file a returndeleted text end .

(b) Members of a unitary business that are required to file a combined report on one
return must designate a member of the unitary business to be responsible for tax matters,
including the filing of returns, the payment of taxes, additions to tax, penalties, interest,
or any other payment, and for the receipt of refunds of taxes or interest paid in excess of
taxes lawfully due. The designated member must be a member of the unitary business that
is filing the single combined report and either:

(1) a corporation that is subject to the taxes imposed by chapter 290; or

(2) a corporation that is not subject to the taxes imposed by chapter 290:

(i) Such corporation consents by filing the return as a designated member under this
clause to remit taxes, penalties, interest, or additions to tax due from the members of the
unitary business subject to tax, and receive refunds or other payments on behalf of other
members of the unitary business. The member designated under this clause is a "taxpayer"
for the purposes of this chapter and chapter 270C, and is liable for any liability imposed
on the unitary business under this chapter and chapter 290.

(ii) If the state does not otherwise have the jurisdiction to tax the member designated
under this clause, consenting to be the designated member does not create the jurisdiction
to impose tax on the designated member, other than as described in item (i).

(iii) The member designated under this clause must apply for a business tax account
identification number.

(c) The commissioner shall adopt rules for the filing of one return on behalf of the
members of an affiliated group of corporations that are required to file a combined report.
All members of an affiliated group that are required to file a combined report must file one
return on behalf of the members of the group under rules adopted by the commissioner.

(d) If a corporation claims on a return that it has paid tax in excess of the amount of
taxes lawfully due, that corporation must include on that return information necessary for
payment of the tax in excess of the amount lawfully due by electronic means.

Subd. 7.

Resident.

(a) The term "resident" means any individual domiciled
in Minnesota, except that an individual is not a "resident" for the period of time that
the individual is a "qualified individual" as defined in section 911(d)(1) of the Internal
Revenue Code, if the qualified individual notifies the county within three months of
moving out of the country that homestead status be revoked for the Minnesota residence
of the qualified individual, and the property is not classified as a homestead while the
individual remains a qualified individual.

(b) "Resident" also means any individual domiciled outside the state who maintains
a place of abode in the state and spends in the aggregate more than one-half of the tax
year in Minnesota, unless:

(1) the individual or the spouse of the individual is in the armed forces of the United
States; or

(2) the individual is covered under the reciprocity provisions in section 290.081.

For purposes of this subdivision, presence within the state for any part of a calendar
day constitutes a day spent in the state. Individuals shall keep adequate records to
substantiate the days spent outside the state.

The term "abode" means a dwelling maintained by an individual, whether or not
owned by the individual and whether or not occupied by the individual, and includes a
dwelling place owned or leased by the individual's spousenew text begin and a dwelling place owned by
the individual or spouse of the individual that is leased to a person with a relationship to
the individual or their spouse described in section 267(b) of the Internal Revenue Codenew text end .

(c) Neither the commissioner nor any court shall consider charitable contributions
made by an individual within or without the state in determining if the individual is
domiciled in Minnesota.

new text begin (d) "Part-year resident" means an individual domiciled outside the state, who is not a
resident of the state under paragraph (b), who maintains a place of abode in the state for
more than one-half of the tax year, and spends in the aggregate more than 60 days in the
state during the period the individual was domiciled outside the state unless:
new text end

new text begin (1) the individual or spouse of the individual is in the armed forces of the United
States; or
new text end

new text begin (2) the individual is covered under the reciprocity provisions in section 290.081.
new text end

new text begin For the purposes of this paragraph, a day spent in Minnesota for the primary purpose
of receiving medical treatment by the taxpayer, or the spouse, child, or parent of the
taxpayer, is not treated as a day spent in Minnesota. Medical treatment is treatment as
defined in section 213(d)(1)(A) of the Internal Revenue Code.
new text end

Subd. 19b.

Subtractions from federal taxable income.

For individuals, estates,
and trusts, there shall be subtracted from federal taxable income:

(1) net interest income on obligations of any authority, commission, or
instrumentality of the United States to the extent includable in taxable income for federal
income tax purposes but exempt from state income tax under the laws of the United States;

(2) if included in federal taxable income, the amount of any overpayment of income
tax to Minnesota or to any other state, for any previous taxable year, whether the amount
is received as a refund or as a credit to another taxable year's income tax liability;

(3) the amount paid to others, less the amount used to claim the credit allowed under
section 290.0674, not to exceed $1,625 for each qualifying child in grades kindergarten
to 6 and $2,500 for each qualifying child in grades 7 to 12, for tuition, textbooks, and
transportation of each qualifying child in attending an elementary or secondary school
situated in Minnesota, North Dakota, South Dakota, Iowa, or Wisconsin, wherein a
resident of this state may legally fulfill the state's compulsory attendance laws, which
is not operated for profit, and which adheres to the provisions of the Civil Rights Act
of 1964 and chapter 363A. For the purposes of this clause, "tuition" includes fees or
tuition as defined in section 290.0674, subdivision 1, clause (1). As used in this clause,
"textbooks" includes books and other instructional materials and equipment purchased
or leased for use in elementary and secondary schools in teaching only those subjects
legally and commonly taught in public elementary and secondary schools in this state.
Equipment expenses qualifying for deduction includes expenses as defined and limited in
section 290.0674, subdivision 1, clause (3). "Textbooks" does not include instructional
books and materials used in the teaching of religious tenets, doctrines, or worship, the
purpose of which is to instill such tenets, doctrines, or worship, nor does it include books
or materials for, or transportation to, extracurricular activities including sporting events,
musical or dramatic events, speech activities, driver's education, or similar programs. No
deduction is permitted for any expense the taxpayer incurred in using the taxpayer's or
the qualifying child's vehicle to provide such transportation for a qualifying child. For
purposes of the subtraction provided by this clause, "qualifying child" has the meaning
given in section 32(c)(3) of the Internal Revenue Code;

(4) income as provided under section 290.0802;

(5) to the extent included in federal adjusted gross income, income realized on
disposition of property exempt from tax under section 290.491;

(6) to the extent not deducted or not deductible pursuant to section 408(d)(8)(E)
of the Internal Revenue Code in determining federal taxable income by an individual
who does not itemize deductions for federal income tax purposes for the taxable year, an
amount equal to 50 percent of the excess of charitable contributions over $500 allowable
as a deduction for the taxable year under section 170(a) of the Internal Revenue Code,
under the provisions of Public Law 109-1 and Public Law 111-126;

(7) for individuals who are allowed a federal foreign tax credit for taxes that do not
qualify for a credit under section 290.06, subdivision 22, an amount equal to the carryover
of subnational foreign taxes for the taxable year, but not to exceed the total subnational
foreign taxes reported in claiming the foreign tax credit. For purposes of this clause,
"federal foreign tax credit" means the credit allowed under section 27 of the Internal
Revenue Code, and "carryover of subnational foreign taxes" equals the carryover allowed
under section 904(c) of the Internal Revenue Code minus national level foreign taxes to
the extent they exceed the federal foreign tax credit;

(8) in each of the five tax years immediately following the tax year in which an
addition is required under subdivision 19a, clause (7), or 19c, clause deleted text begin (15)deleted text end new text begin (14)new text end , in the case
of a shareholder of a corporation that is an S corporation, an amount equal to one-fifth
of the delayed depreciation. For purposes of this clause, "delayed depreciation" means
the amount of the addition made by the taxpayer under subdivision 19a, clause (7), or
subdivision 19c, clause deleted text begin (15)deleted text end new text begin (14)new text end , in the case of a shareholder of an S corporation, minus
the positive value of any net operating loss under section 172 of the Internal Revenue
Code generated for the tax year of the addition. The resulting delayed depreciation
cannot be less than zero;

(9) job opportunity building zone income as provided under section 469.316;

(10) to the extent included in federal taxable income, the amount of compensation
paid to members of the Minnesota National Guard or other reserve components of the
United States military for active service performed in Minnesota, excluding compensation
for services performed under the Active Guard Reserve (AGR) program. For purposes of
this clause, "active service" means (i) state active service as defined in section 190.05,
subdivision 5a, clause (1); (ii) federally funded state active service as defined in section
190.05, subdivision 5b; or (iii) federal active service as defined in section 190.05,
subdivision 5c, but "active service" excludes service performed in accordance with section
190.08, subdivision 3;

(11) to the extent included in federal taxable income, the amount of compensation
paid to Minnesota residents who are members of the armed forces of the United States or
United Nations for active duty performed outside Minnesota under United States Code,
title 10, section 101(d); United States Code, title 32, section 101(12); or the authority of
the United Nations;

(12) an amount, not to exceed $10,000, equal to qualified expenses related to a
qualified donor's donation, while living, of one or more of the qualified donor's organs
to another person for human organ transplantation. For purposes of this clause, "organ"
means all or part of an individual's liver, pancreas, kidney, intestine, lung, or bone marrow;
"human organ transplantation" means the medical procedure by which transfer of a human
organ is made from the body of one person to the body of another person; "qualified
expenses" means unreimbursed expenses for both the individual and the qualified donor
for (i) travel, (ii) lodging, and (iii) lost wages net of sick pay, except that such expenses
may be subtracted under this clause only once; and "qualified donor" means the individual
or the individual's dependent, as defined in section 152 of the Internal Revenue Code. An
individual may claim the subtraction in this clause for each instance of organ donation for
transplantation during the taxable year in which the qualified expenses occur;

(13) in each of the five tax years immediately following the tax year in which an
addition is required under subdivision 19a, clause (8), or 19c, clause deleted text begin (16)deleted text end new text begin (15)new text end , in the case
of a shareholder of a corporation that is an S corporation, an amount equal to one-fifth
of the addition made by the taxpayer under subdivision 19a, clause (8), or 19c, clause
deleted text begin (16)deleted text end new text begin (15)new text end , in the case of a shareholder of a corporation that is an S corporation, minus the
positive value of any net operating loss under section 172 of the Internal Revenue Code
generated for the tax year of the addition. If the net operating loss exceeds the addition for
the tax year, a subtraction is not allowed under this clause;

(14) to the extent included in federal taxable income, compensation paid to a service
member as defined in United States Code, title 10, section 101(a)(5), for military service
as defined in the Servicemembers Civil Relief Act, Public Law 108-189, section 101(2);

(15) international economic development zone income as provided under section
469.325;

(16) to the extent included in federal taxable income, the amount of national service
educational awards received from the National Service Trust under United States Code,
title 42, sections 12601 to 12604, for service in an approved Americorps National Service
program; and

(17) to the extent included in federal taxable income, discharge of indebtedness
income resulting from reacquisition of business indebtedness included in federal taxable
income under section 108(i) of the Internal Revenue Code. This subtraction applies only
to the extent that the income was included in net income in a prior year as a result of the
addition under section 290.01, subdivision 19a, clause (16).

Subd. 19c.

Corporations; additions to federal taxable income.

For corporations,
there shall be added to federal taxable income:

(1) the amount of any deduction taken for federal income tax purposes for income,
excise, or franchise taxes based on net income or related minimum taxes, including but not
limited to the tax imposed under section 290.0922, paid by the corporation to Minnesota,
another state, a political subdivision of another state, the District of Columbia, or any
foreign country or possession of the United States;

(2) interest not subject to federal tax upon obligations of: the United States, its
possessions, its agencies, or its instrumentalities; the state of Minnesota or any other
state, any of its political or governmental subdivisions, any of its municipalities, or any
of its governmental agencies or instrumentalities; the District of Columbia; or Indian
tribal governments;

(3) exempt-interest dividends received as defined in section 852(b)(5) of the Internal
Revenue Code;

(4) the amount of any net operating loss deduction taken for federal income tax
purposes under section 172 or 832(c)(10) of the Internal Revenue Code or operations loss
deduction under section 810 of the Internal Revenue Code;

(5) the amount of any special deductions taken for federal income tax purposes
under sections 241 to 247 and 965 of the Internal Revenue Code;

(6) losses from the business of mining, as defined in section 290.05, subdivision 1,
clause (a), that are not subject to Minnesota income tax;

(7) the amount of any capital losses deducted for federal income tax purposes under
sections 1211 and 1212 of the Internal Revenue Code;

(8) the exempt foreign trade income of a foreign sales corporation under sections
921(a) and 291 of the Internal Revenue Code;

(9) the amount of percentage depletion deducted under sections 611 through 614 and
291 of the Internal Revenue Code;

(10) for certified pollution control facilities placed in service in a taxable year
beginning before December 31, 1986, and for which amortization deductions were elected
under section 169 of the Internal Revenue Code of 1954, as amended through December
31, 1985, the amount of the amortization deduction allowed in computing federal taxable
income for those facilities;

deleted text begin (11) the amount of any deemed dividend from a foreign operating corporation
determined pursuant to section 290.17, subdivision 4, paragraph (g). The deemed dividend
shall be reduced by the amount of the addition to income required by clauses (20), (21),
(22), and (23);
deleted text end

deleted text begin (12)deleted text end new text begin (11)new text end the amount of a partner's pro rata share of net income which does not flow
through to the partner because the partnership elected to pay the tax on the income under
section 6242(a)(2) of the Internal Revenue Code;

deleted text begin (13)deleted text end new text begin (12)new text end the amount of net income excluded under section 114 of the Internal
Revenue Code;

deleted text begin (14)deleted text end new text begin (13)new text end any increase in subpart F income, as defined in section 952(a) of the
Internal Revenue Code, for the taxable year when subpart F income is calculated without
regard to the provisions of Division C, title III, section 303(b) of Public Law 110-343;

deleted text begin (15)deleted text end new text begin (14)new text end 80 percent of the depreciation deduction allowed under section
168(k)(1)(A) and (k)(4)(A) of the Internal Revenue Code. For purposes of this clause, if
the taxpayer has an activity that in the taxable year generates a deduction for depreciation
under section 168(k)(1)(A) and (k)(4)(A) and the activity generates a loss for the taxable
year that the taxpayer is not allowed to claim for the taxable year, "the depreciation
allowed under section 168(k)(1)(A) and (k)(4)(A)" for the taxable year is limited to excess
of the depreciation claimed by the activity under section 168(k)(1)(A) and (k)(4)(A)
over the amount of the loss from the activity that is not allowed in the taxable year. In
succeeding taxable years when the losses not allowed in the taxable year are allowed, the
depreciation under section 168(k)(1)(A) and (k)(4)(A) is allowed;

deleted text begin (16)deleted text end new text begin (15)new text end 80 percent of the amount by which the deduction allowed by section 179 of
the Internal Revenue Code exceeds the deduction allowable by section 179 of the Internal
Revenue Code of 1986, as amended through December 31, 2003;

deleted text begin (17)deleted text end new text begin (16)new text end to the extent deducted in computing federal taxable income, the amount of
the deduction allowable under section 199 of the Internal Revenue Code;

deleted text begin (18)deleted text end new text begin (17)new text end the exclusion allowed under section 139A of the Internal Revenue Code
for federal subsidies for prescription drug plans;

deleted text begin (19)deleted text end new text begin (18)new text end the amount of expenses disallowed under section 290.10, subdivision 2;

deleted text begin (20) an amount equal to the interest and intangible expenses, losses, and costs paid,
accrued, or incurred by any member of the taxpayer's unitary group to or for the benefit
of a corporation that is a member of the taxpayer's unitary business group that qualifies
as a foreign operating corporation. For purposes of this clause, intangible expenses and
costs include:
deleted text end

deleted text begin (i) expenses, losses, and costs for, or related to, the direct or indirect acquisition,
use, maintenance or management, ownership, sale, exchange, or any other disposition of
intangible property;
deleted text end

deleted text begin (ii) losses incurred, directly or indirectly, from factoring transactions or discounting
transactions;
deleted text end

deleted text begin (iii) royalty, patent, technical, and copyright fees;
deleted text end

deleted text begin (iv) licensing fees; and
deleted text end

deleted text begin (v) other similar expenses and costs.
deleted text end

deleted text begin For purposes of this clause, "intangible property" includes stocks, bonds, patents, patent
applications, trade names, trademarks, service marks, copyrights, mask works, trade
secrets, and similar types of intangible assets.
deleted text end

deleted text begin This clause does not apply to any item of interest or intangible expenses or costs paid,
accrued, or incurred, directly or indirectly, to a foreign operating corporation with respect
to such item of income to the extent that the income to the foreign operating corporation
is income from sources without the United States as defined in subtitle A, chapter 1,
subchapter N, part 1, of the Internal Revenue Code;
deleted text end

deleted text begin (21) except as already included in the taxpayer's taxable income pursuant to clause
(20), any interest income and income generated from intangible property received or
accrued by a foreign operating corporation that is a member of the taxpayer's unitary
group. For purposes of this clause, income generated from intangible property includes:
deleted text end

deleted text begin (i) income related to the direct or indirect acquisition, use, maintenance or
management, ownership, sale, exchange, or any other disposition of intangible property;
deleted text end

deleted text begin (ii) income from factoring transactions or discounting transactions;
deleted text end

deleted text begin (iii) royalty, patent, technical, and copyright fees;
deleted text end

deleted text begin (iv) licensing fees; and
deleted text end

deleted text begin (v) other similar income.
deleted text end

deleted text begin For purposes of this clause, "intangible property" includes stocks, bonds, patents, patent
applications, trade names, trademarks, service marks, copyrights, mask works, trade
secrets, and similar types of intangible assets.
deleted text end

deleted text begin This clause does not apply to any item of interest or intangible income received or accrued
by a foreign operating corporation with respect to such item of income to the extent that
the income is income from sources without the United States as defined in subtitle A,
chapter 1, subchapter N, part 1, of the Internal Revenue Code;
deleted text end

deleted text begin (22) the dividends attributable to the income of a foreign operating corporation that
is a member of the taxpayer's unitary group in an amount that is equal to the dividends
paid deduction of a real estate investment trust under section 561(a) of the Internal
Revenue Code for amounts paid or accrued by the real estate investment trust to the
foreign operating corporation;
deleted text end

deleted text begin (23) the income of a foreign operating corporation that is a member of the taxpayer's
unitary group in an amount that is equal to gains derived from the sale of real or personal
property located in the United States;
deleted text end

deleted text begin (24)deleted text end new text begin (19)new text end the additional amount allowed as a deduction for donation of computer
technology and equipment under section 170(e)(6) of the Internal Revenue Code, to the
extent deducted from taxable income; and

deleted text begin (25)deleted text end new text begin (20)new text end discharge of indebtedness income resulting from reacquisition of business
indebtedness and deferred under section 108(i) of the Internal Revenue Code.

Subd. 19d.

Corporations; modifications decreasing federal taxable income.

For
corporations, there shall be subtracted from federal taxable income after the increases
provided in subdivision 19c:

(1) the amount of foreign dividend gross-up added to gross income for federal
income tax purposes under section 78 of the Internal Revenue Code;

(2) the amount of salary expense not allowed for federal income tax purposes due to
claiming the work opportunity credit under section 51 of the Internal Revenue Code;

(3) any dividend (not including any distribution in liquidation) paid within the
taxable year by a national or state bank to the United States, or to any instrumentality of
the United States exempt from federal income taxes, on the preferred stock of the bank
owned by the United States or the instrumentality;

(4) amounts disallowed for intangible drilling costs due to differences between
this chapter and the Internal Revenue Code in taxable years beginning before January
1, 1987, as follows:

(i) to the extent the disallowed costs are represented by physical property, an amount
equal to the allowance for depreciation under Minnesota Statutes 1986, section 290.09,
subdivision 7, subject to the modifications contained in subdivision 19e; and

(ii) to the extent the disallowed costs are not represented by physical property, an
amount equal to the allowance for cost depletion under Minnesota Statutes 1986, section
290.09, subdivision 8;

(5) the deduction for capital losses pursuant to sections 1211 and 1212 of the
Internal Revenue Code, except that:

(i) for capital losses incurred in taxable years beginning after December 31, 1986,
capital loss carrybacks shall not be allowed;

(ii) for capital losses incurred in taxable years beginning after December 31, 1986,
a capital loss carryover to each of the 15 taxable years succeeding the loss year shall be
allowed;

(iii) for capital losses incurred in taxable years beginning before January 1, 1987, a
capital loss carryback to each of the three taxable years preceding the loss year, subject to
the provisions of Minnesota Statutes 1986, section 290.16, shall be allowed; and

(iv) for capital losses incurred in taxable years beginning before January 1, 1987,
a capital loss carryover to each of the five taxable years succeeding the loss year to the
extent such loss was not used in a prior taxable year and subject to the provisions of
Minnesota Statutes 1986, section 290.16, shall be allowed;

(6) an amount for interest and expenses relating to income not taxable for federal
income tax purposes, if (i) the income is taxable under this chapter and (ii) the interest and
expenses were disallowed as deductions under the provisions of section 171(a)(2), 265 or
291 of the Internal Revenue Code in computing federal taxable income;

(7) in the case of mines, oil and gas wells, other natural deposits, and timber for
which percentage depletion was disallowed pursuant to subdivision 19c, clause (9), a
reasonable allowance for depletion based on actual cost. In the case of leases the deduction
must be apportioned between the lessor and lessee in accordance with rules prescribed
by the commissioner. In the case of property held in trust, the allowable deduction must
be apportioned between the income beneficiaries and the trustee in accordance with the
pertinent provisions of the trust, or if there is no provision in the instrument, on the basis
of the trust's income allocable to each;

(8) for certified pollution control facilities placed in service in a taxable year
beginning before December 31, 1986, and for which amortization deductions were elected
under section 169 of the Internal Revenue Code of 1954, as amended through December
31, 1985, an amount equal to the allowance for depreciation under Minnesota Statutes
1986, section 290.09, subdivision 7;

(9) amounts included in federal taxable income that are due to refunds of income,
excise, or franchise taxes based on net income or related minimum taxes paid by the
corporation to Minnesota, another state, a political subdivision of another state, the
District of Columbia, or a foreign country or possession of the United States to the extent
that the taxes were added to federal taxable income under deleted text begin section 290.01,deleted text end subdivision 19c,
clause (1), in a prior taxable year;

deleted text begin (10) 80 percent of royalties, fees, or other like income accrued or received from a
foreign operating corporation or a foreign corporation which is part of the same unitary
business as the receiving corporation, unless the income resulting from such payments or
accruals is income from sources within the United States as defined in subtitle A, chapter
1, subchapter N, part 1, of the Internal Revenue Code;
deleted text end

deleted text begin (11)deleted text end new text begin (10) new text end income or gains from the business of mining as defined in section 290.05,
subdivision 1, clause (a), that are not subject to Minnesota franchise tax;

deleted text begin (12)deleted text end new text begin (11) new text end the amount of disability access expenditures in the taxable year which are
not allowed to be deducted or capitalized under section 44(d)(7) of the Internal Revenue
Code;

deleted text begin (13)deleted text end new text begin (12) new text end the amount of qualified research expenses not allowed for federal income
tax purposes under section 280C(c) of the Internal Revenue Code, but only to the extent
that the amount exceeds the amount of the credit allowed under section 290.068;

deleted text begin (14)deleted text end new text begin (13) new text end the amount of salary expenses not allowed for federal income tax purposes
due to claiming the Indian employment credit under section 45A(a) of the Internal
Revenue Code;

deleted text begin (15)deleted text end new text begin (14) new text end for a corporation whose foreign sales corporation, as defined in section
922 of the Internal Revenue Code, constituted a foreign operating corporation during any
taxable year ending before January 1, 1995, and a return was filed by August 15, 1996,
claiming the deduction under section 290.21, subdivision 4, for income received from
the foreign operating corporation, an amount equal to 1.23 multiplied by the amount of
income excluded under section 114 of the Internal Revenue Code, provided the income is
not income of a foreign operating company;

deleted text begin (16)deleted text end new text begin (15) new text end any decrease in subpart F income, as defined in section 952(a) of the
Internal Revenue Code, for the taxable year when subpart F income is calculated without
regard to the provisions of Division C, title III, section 303(b) of Public Law 110-343;

deleted text begin (17)deleted text end new text begin (16) new text end in each of the five tax years immediately following the tax year in which an
addition is required under subdivision 19c, clause deleted text begin (15)deleted text end new text begin (14)new text end , an amount equal to one-fifth
of the delayed depreciation. For purposes of this clause, "delayed depreciation" means the
amount of the addition made by the taxpayer under subdivision 19c, clause deleted text begin (15)deleted text end new text begin (14)new text end . The
resulting delayed depreciation cannot be less than zero;

deleted text begin (18)deleted text end new text begin (17) new text end in each of the five tax years immediately following the tax year in which an
addition is required under subdivision 19c, clause deleted text begin (16)deleted text end new text begin (15)new text end , an amount equal to one-fifth
of the amount of the addition; and

deleted text begin (19)deleted text end new text begin (18) new text end to the extent included in federal taxable income, discharge of indebtedness
income resulting from reacquisition of business indebtedness included in federal taxable
income under section 108(i) of the Internal Revenue Code. This subtraction applies only
to the extent that the income was included in net income in a prior year as a result of the
addition under deleted text begin section 290.01,deleted text end subdivision 19c, clause deleted text begin (25)deleted text end new text begin (20)new text end .

Subd. 22.

Taxable net income.

For tax years beginning after December 31, 1986,
the term "taxable net income" means:

(1) for resident individuals the same as net income;

(2) for individuals who were not residents of Minnesota for the entire year, the same
as net income except that the tax is imposed only on the Minnesota apportioned share of
that income as determined pursuant to section 290.06, subdivision 2c, paragraph (e);

(3) for all other taxpayers, the part of net income that is allocable to Minnesota by
assignment or apportionment under one or more of sections 290.17, 290.191, 290.20,new text begin
290.341,new text end and 290.36.

For tax years beginning before January 1, 1987, the term "taxable net income"
means the net income assignable to this state pursuant to sections 290.17 to 290.20. For
corporations, taxable net income is then reduced by the deductions contained in section
290.21.

Subd. 29.

Taxable income.

The term "taxable income" means:

(1) for individuals, estates, and trusts, the same as taxable net income;

(2) for corporations,new text begin including insurance companies,new text end the taxable net income less

(i) the net operating loss deduction under section 290.095;

(ii) the dividends received deduction under section 290.21, subdivision 4;

(iii) the exemption for operating in a job opportunity building zone under section
469.317;

(iv) the exemption for operating in a biotechnology and health sciences industry
zone under section 469.337; and

(v) the exemption for operating in an international economic development zone
under section 469.326.

Subd. 5.

Corporations.

Except as provided in section 290.015, corporations are
subject to the return filing requirements and to tax as provided in this chapter if the
corporation so exercises its franchise as to engage in such contacts with this state as to
cause part of the income of the corporation to be:

(1) allocable to this state under section 290.17, 290.191, 290.20,new text begin 290.341,new text end or 290.36;

(2) taxed to the corporation under the Internal Revenue Code (or not taxed under the
Internal Revenue Code by reason of its character but of a character which is taxable under
this chapter) in its capacity as a beneficiary of an estate with income allocable to this state
under section 290.17, 290.191, or 290.20 and the income, taking into account the income
character provisions of section 662(b) of the Internal Revenue Code, would be allocable to
this state under section 290.17, 290.191, or 290.20 if realized by the corporation directly
from the source from which realized by the estate;

(3) taxed to the corporation under the Internal Revenue Code (or not taxed under
the Internal Revenue Code by reason of its character but of a character which is taxable
under this chapter) in its capacity as a beneficiary or grantor or other person treated as a
substantial owner of a trust with income allocable to this state under section 290.17,
290.191, or 290.20 and the income, taking into account the income character provisions of
section 652(b), 662(b), or 664(b) of the Internal Revenue Code, would be allocable to this
state under section 290.17, 290.191, or 290.20 if realized by the corporation directly from
the source from which realized by the trust; or

(4) taxed to the corporation under the Internal Revenue Code (or not taxed under the
Internal Revenue Code by reason of its character but of a character which is taxable under
this chapter) in its capacity as a limited or general partner in a partnership with income
allocable to this state under section 290.17, 290.191, or 290.20 and the income, taking into
account the income character provisions of section 702(b) of the Internal Revenue Code,
would be allocable to this state under section 290.17, 290.191, or 290.20 if realized by the
corporation directly from the source from which realized by the partnership.

Subdivision 1.

Exempt entities.

The following corporations, individuals, estates,
trusts, and organizations shall be exempted from taxation under this chapter, provided
that every such person or corporation claiming exemption under this chapter, in whole
or in part, must establish to the satisfaction of the commissioner the taxable status of
any income or activity:

(a) corporations, individuals, estates, and trusts engaged in the business of mining
or producing iron ore and other ores the mining or production of which is subject to
the occupation tax imposed by section 298.01; but if any such corporation, individual,
estate, or trust engages in any other business or activity or has income from any property
not used in such business it shall be subject to this tax computed on the net income from
such property or such other business or activity. Royalty shall not be considered as income
from the business of mining or producing iron ore within the meaning of this section;

(b) the United States of America, the state of Minnesota or any political subdivision
of either agencies or instrumentalities, whether engaged in the discharge of governmental
or proprietary functions; deleted text begin and
deleted text end

(c) any insurance companydeleted text begin .deleted text end new text begin that is domiciled in a state or country other than
Minnesota that imposes retaliatory taxes, fines, deposits, penalties, licenses, or fees
and that does not grant, on a reciprocal basis, exemption from such retaliatory taxes to
insurance companies or their agents domiciled in Minnesota. "Retaliatory taxes" has the
meaning provided in section 297I.05, subdivision 11; and
new text end

new text begin (d) town and farmer's mutual insurance companies.
new text end

Subd. 2c.

Schedules of rates for individuals, estates, and trusts.

(a) The income
taxes imposed by this chapter upon married individuals filing joint returns and surviving
spouses as defined in section 2(a) of the Internal Revenue Code must be computed by
applying to their taxable net income the following schedule of rates:

(1) On the first deleted text begin $25,680deleted text end new text begin $33,770new text end , 5.35 percent;

(2) On all over deleted text begin $25,680deleted text end new text begin $33,770new text end , but not over deleted text begin $102,030deleted text end new text begin $134,170new text end , 7.05 percent;

(3) On all over deleted text begin $102,030deleted text end new text begin $134,170new text end , new text begin but not over $150,000, new text end 7.85 percentdeleted text begin .deleted text end new text begin ;
new text end

new text begin (4) On all over $150,000, 10.95 percent.
new text end

Married individuals filing separate returns, estates, and trusts must compute their
income tax by applying the above rates to their taxable income, except that the income
brackets will be one-half of the above amounts.

(b) The income taxes imposed by this chapter upon unmarried individuals must be
computed by applying to taxable net income the following schedule of rates:

(1) On the first deleted text begin $17,570deleted text end new text begin $23,100new text end , 5.35 percent;

(2) On all over deleted text begin $17,570deleted text end new text begin $23,100new text end , but not over deleted text begin $57,710deleted text end new text begin $75,890new text end , 7.05 percent;

(3) On all over deleted text begin $57,710deleted text end new text begin $75,890new text end , new text begin but not over $85,000, new text end 7.85 percentdeleted text begin .deleted text end new text begin ;
new text end

new text begin (4) On all over $85,000, 10.95 percent.
new text end

(c) The income taxes imposed by this chapter upon unmarried individuals qualifying
as a head of household as defined in section 2(b) of the Internal Revenue Code must be
computed by applying to taxable net income the following schedule of rates:

(1) On the first deleted text begin $21,630deleted text end new text begin $28,440new text end , 5.35 percent;

(2) On all over deleted text begin $21,630deleted text end new text begin $28,440new text end , but not over deleted text begin $86,910deleted text end new text begin $114,290new text end , 7.05 percent;

(3) On all over deleted text begin $86,910deleted text end new text begin $114,290new text end , new text begin but not over $130,000, new text end 7.85 percentdeleted text begin .deleted text end new text begin ;
new text end

new text begin (4) On all over $130,000, 10.95 percent.
new text end

(d) In lieu of a tax computed according to the rates set forth in this subdivision, the
tax of any individual taxpayer whose taxable net income for the taxable year is less than
an amount determined by the commissioner must be computed in accordance with tables
prepared and issued by the commissioner of revenue based on income brackets of not
more than $100. The amount of tax for each bracket shall be computed at the rates set
forth in this subdivision, provided that the commissioner may disregard a fractional part of
a dollar unless it amounts to 50 cents or more, in which case it may be increased to $1.

(e) An individual who is not a Minnesota resident for the entire year must compute
the individual's Minnesota income tax as provided in this subdivision. After the
application of the nonrefundable credits provided in this chapter, the tax liability must
then be multiplied by a fraction in which:

(1) the numerator is the individual's Minnesota source federal adjusted gross income
as defined in section 62 of the Internal Revenue Code and increased by the additions
required under section 290.01, subdivision 19a, clauses (1), (5), (6), (7), (8), (9), (12),
(13), (16), and (17), and reduced by the Minnesota assignable portion of the subtraction
for United States government interest under section 290.01, subdivision 19b, clause
(1), and the subtractions under section 290.01, subdivision 19b, clauses (8), (9), (13),
(14), (15), and (17), after applying the allocation and assignability provisions of section
290.081, clause (a), or 290.17; and

(2) the denominator is the individual's federal adjusted gross income as defined in
section 62 of the Internal Revenue Code of 1986, increased by the amounts specified in
section 290.01, subdivision 19a, clauses (1), (5), (6), (7), (8), (9), (12), (13), (16), and
(17), and reduced by the amounts specified in section 290.01, subdivision 19b, clauses (1),
(8), (9), (13), (14), (15), and (17).

Subd. 2d.

Inflation adjustment of brackets.

(a) For taxable years beginning after
December 31, deleted text begin 2000deleted text end new text begin 2011new text end , the minimum and maximum dollar amounts for each rate
bracket for which a tax is imposed in subdivision 2c shall be adjusted for inflation by the
percentage determined under paragraph (b). For the purpose of making the adjustment as
provided in this subdivision all of the rate brackets provided in subdivision 2c shall be the
rate brackets as they existed for taxable years beginning after December 31, deleted text begin 1999deleted text end new text begin 2010new text end ,
and before January 1, deleted text begin 2001deleted text end new text begin 2012new text end . The rate applicable to any rate bracket must not be
changed. The dollar amounts setting forth the tax shall be adjusted to reflect the changes
in the rate brackets. The rate brackets as adjusted must be rounded to the nearest $10
amount. If the rate bracket ends in $5, it must be rounded up to the nearest $10 amount.

(b) The commissioner shall adjust the rate brackets and by the percentage determined
pursuant to the provisions of section 1(f) of the Internal Revenue Code, except that in
section 1(f)(3)(B) the word deleted text begin "1999"deleted text end new text begin "2010"new text end shall be substituted for the word "1992." For
deleted text begin 2001deleted text end new text begin 2012new text end , the commissioner shall then determine the percent change from the 12 months
ending on August 31, deleted text begin 1999deleted text end new text begin 2010new text end , to the 12 months ending on August 31, deleted text begin 2000deleted text end new text begin 2011new text end , and
in each subsequent year, from the 12 months ending on August 31, deleted text begin 1999deleted text end new text begin 2010new text end , to the 12
months ending on August 31 of the year preceding the taxable year. The determination of
the commissioner pursuant to this subdivision shall not be considered a "rule" and shall
not be subject to the Administrative Procedure Act contained in chapter 14.

No later than December 15 of each year, the commissioner shall announce the
specific percentage that will be used to adjust the tax rate brackets.

Subd. 22.

Credit for taxes paid to another state.

(a) A taxpayer who is liable for
taxes based on net income to another state, as provided in paragraphs (b) through (f),
upon income allocated or apportioned to Minnesota, is entitled to a credit for the tax paid
to another state if the tax is actually paid in the taxable year or a subsequent taxable
year. A taxpayer who is a resident of this state pursuant to section 290.01, subdivision
7, paragraph (b)new text begin or (d)new text end , and who is subject to income tax as a resident in the state of
the individual's domicile is not allowed this credit unless the state of domicile does not
allow a similar credit.

(b) For an individual, estate, or trust, the credit is determined by multiplying the tax
payable under this chapter by the ratio derived by dividing the income subject to tax in the
other state that is also subject to tax in Minnesota while a resident of Minnesota by the
taxpayer's federal adjusted gross income, as defined in section 62 of the Internal Revenue
Code, modified by the addition required by section 290.01, subdivision 19a, clause (1),
and the subtraction allowed by section 290.01, subdivision 19b, clause (1), to the extent
the income is allocated or assigned to Minnesota under sections 290.081 and 290.17.

(c) If the taxpayer is an athletic team that apportions all of its income under section
290.17, subdivision 5, the credit is determined by multiplying the tax payable under this
chapter by the ratio derived from dividing the total net income subject to tax in the other
state by the taxpayer's Minnesota taxable income.

(d) The credit determined under paragraph (b) or (c) shall not exceed the amount of
tax so paid to the other state on the gross income earned within the other state subject to
tax under this chapter, nor shall the allowance of the credit reduce the taxes paid under
this chapter to an amount less than what would be assessed if such income amount was
excluded from taxable net income.

(e) In the case of the tax assessed on a lump-sum distribution under section
290.032, the credit allowed under paragraph (a) is the tax assessed by the other state on
the lump-sum distribution that is also subject to tax under section 290.032, and shall
not exceed the tax assessed under section 290.032. To the extent the total lump-sum
distribution defined in section 290.032, subdivision 1, includes lump-sum distributions
received in prior years or is all or in part an annuity contract, the reduction to the tax on
the lump-sum distribution allowed under section 290.032, subdivision 2, includes tax paid
to another state that is properly apportioned to that distribution.

(f) If a Minnesota resident reported an item of income to Minnesota and is assessed
tax in such other state on that same income after the Minnesota statute of limitations
has expired, the taxpayer shall receive a credit for that year under paragraph (a),
notwithstanding any statute of limitations to the contrary. The claim for the credit must
be submitted within one year from the date the taxes were paid to the other state. The
taxpayer must submit sufficient proof to show entitlement to a credit.

(g) For the purposes of this subdivision, a resident shareholder of a corporation
treated as an "S" corporation under section 290.9725, must be considered to have paid
a tax imposed on the shareholder in an amount equal to the shareholder's pro rata share
of any net income tax paid by the S corporation to another state. For the purposes of the
preceding sentence, the term "net income tax" means any tax imposed on or measured by
a corporation's net income.

(h) For the purposes of this subdivision, a resident partner of an entity taxed as
a partnership under the Internal Revenue Code must be considered to have paid a tax
imposed on the partner in an amount equal to the partner's pro rata share of any net income
tax paid by the partnership to another state. For purposes of the preceding sentence,
the term "net income" tax means any tax imposed on or measured by a partnership's
net income.

(i) For the purposes of this subdivision, "another state":

(1) includes:

(i) the District of Columbia; and

(ii) a province or territory of Canada; but

(2) excludes Puerto Rico and the several territories organized by Congress.

(j) The limitations on the credit in paragraphs (b), (c), and (d), are imposed on a
state by state basis.

(k) For a tax imposed by a province or territory of Canada, the tax for purposes of
this subdivision is the excess of the tax over the amount of the foreign tax credit allowed
under section 27 of the Internal Revenue Code. In determining the amount of the foreign
tax credit allowed, the net income taxes imposed by Canada on the income are deducted
first. Any remaining amount of the allowable foreign tax credit reduces the provincial or
territorial tax that qualifies for the credit under this subdivision.

Subdivision 1.

Credit allowed.

A corporation, partners in a partnership, or
shareholders in a corporation treated as an "S" corporation under section 290.9725 are
allowed a credit against the tax computed under this chapter for the taxable year equal to:

(a) deleted text begin tendeleted text end new text begin 15 new text end percent of the first $2,000,000 of the excess (if any) of

(1) the qualified research expenses for the taxable year, over

(2) the base amount; and

(b) 2.5 percent on all of such excess expenses over $2,000,000.

Subd. 2.

Definitions.

For purposes of this section, the following terms have the
meanings given.

(a) "Qualified research expenses" means (i) qualified research expenses and basic
research payments as defined in section 41(b) and (e) of the Internal Revenue Code, except
it does not include expenses incurred for qualified research or basic research conducted
outside the state of Minnesota pursuant to section 41(d) and (e) of the Internal Revenue
Code; and (ii) contributions to a nonprofit corporation established and operated pursuant
to the provisions of chapter 317A for the purpose of promoting the establishment and
expansion of business in this state, provided the contributions are invested by the nonprofit
corporation for the purpose of providing funds for small, technologically innovative
enterprises in Minnesota during the early stages of their development.

(b) "Qualified research" means qualified research as defined in section 41(d) of the
Internal Revenue Code, except that the term does not include qualified research conducted
outside the state of Minnesota.

(c) "Base amount" means base amount as defined in section 41(c) of the Internal
Revenue Code, except that the average annual gross receipts must be calculated using
Minnesota sales or receipts under section 290.191 and the definitions contained in clauses
(a) and (b) shall apply.new text begin If a taxpayer does not have records to substantiate the aggregate
qualified research expenses for the taxable years beginning after December 31, 1983, and
before January 1, 1989, and is not a start-up company to which Internal Revenue Code,
section 41(c)(3)(B), applies, the taxpayer may use a fixed base percentage of 16 percent.
new text end

Subdivision 1.

Tax imposed.

In addition to the taxes computed under this chapter
without regard to this section, the franchise tax imposed on corporations includes a tax
equal to the excess, if any, for the taxable year of:

(1) 5.8 percent of Minnesota alternative minimum taxable incomenew text begin less the credit
allowed under section 290.341, subdivision 3new text end ; over

(2) the tax imposed under section 290.06, subdivision 1, without regard to this
section.

Subd. 2.

Definitions.

(a) For purposes of this section, the following terms have
the meanings given them.

(b) "Alternative minimum taxable net income" is alternative minimum taxable
income,

(1) less the exemption amount, and

(2) apportioned or allocated to Minnesota under section 290.17, 290.191, or 290.20.

(c) The "exemption amount" is $40,000, reduced, but not below zero, by 25 percent
of the excess of alternative minimum taxable income over $150,000.

(d) "Minnesota alternative minimum taxable income" is alternative minimum taxable
net income, less the deductions for alternative tax net operating loss under subdivision
4; and dividends received under subdivision 6. The sum of the deductions under this
paragraph may not exceed 90 percent of alternative minimum taxable net income. This
limitation does not apply to:

(1) a deduction for dividends paid to or received from a corporation which is subject
to tax under section new text begin 290.341 or new text end 290.36 and which is a member of an affiliated group of
corporations as defined by the Internal Revenue Code; or

(2) a deduction for dividends received from a property and casualty insurer as
defined under section 60A.60, subdivision 8, which is a member of an affiliated group
of corporations as defined by the Internal Revenue Code and either: (i) the dividend is
eliminated in consolidation under Treasury Regulation 1.1502-14(a), as amended through
December 31, 1989; or (ii) the dividend is deducted under an election under section
243(b) of the Internal Revenue Code.

Subd. 3.

Alternative minimum taxable income.

"Alternative minimum taxable
income" is Minnesota net income as defined in section 290.01, subdivision 19, and
includes the adjustments and tax preference items in sections 56, 57, 58, and 59(d), (e),
(f), and (h) of the Internal Revenue Code. If a corporation files a separate company
Minnesota tax return, the minimum tax must be computed on a separate company basis.
If a corporation is part of a tax group filing a unitary return, the minimum tax must be
computed on a unitary basis. The following adjustments must be made.

(1) For purposes of the depreciation adjustments under section 56(a)(1) and
56(g)(4)(A) of the Internal Revenue Code, the basis for depreciable property placed in
service in a taxable year beginning before January 1, 1990, is the adjusted basis for federal
income tax purposes, including any modification made in a taxable year under section
290.01, subdivision 19e, or Minnesota Statutes 1986, section 290.09, subdivision 7,
paragraph (c).

For taxable years beginning after December 31, 2000, the amount of any remaining
modification made under section 290.01, subdivision 19e, or Minnesota Statutes 1986,
section 290.09, subdivision 7, paragraph (c), not previously deducted is a depreciation
allowance in the first taxable year after December 31, 2000.

(2) The portion of the depreciation deduction allowed for federal income tax
purposes under section 168(k) of the Internal Revenue Code that is required as an addition
under section 290.01, subdivision 19c, clause deleted text begin (15)deleted text end new text begin (14)new text end , is disallowed in determining
alternative minimum taxable income.

(3) The subtraction for depreciation allowed under section 290.01, subdivision
19d, clause deleted text begin (17)deleted text end new text begin (16)new text end , is allowed as a depreciation deduction in determining alternative
minimum taxable income.

(4) The alternative tax net operating loss deduction under sections 56(a)(4) and 56(d)
of the Internal Revenue Code does not apply.

(5) The special rule for certain dividends under section 56(g)(4)(C)(ii) of the Internal
Revenue Code does not apply.

(6) The special rule for dividends from section 936 companies under section
56(g)(4)(C)(iii) does not apply.

(7) The tax preference for depletion under section 57(a)(1) of the Internal Revenue
Code does not apply.

(8) The tax preference for intangible drilling costs under section 57(a)(2) of the
Internal Revenue Code must be calculated without regard to subparagraph (E) and the
subtraction under section 290.01, subdivision 19d, clause (4).

(9) The tax preference for tax exempt interest under section 57(a)(5) of the Internal
Revenue Code does not apply.

(10) The tax preference for charitable contributions of appreciated property under
section 57(a)(6) of the Internal Revenue Code does not apply.

(11) For purposes of calculating the tax preference for accelerated depreciation or
amortization on certain property placed in service before January 1, 1987, under section
57(a)(7) of the Internal Revenue Code, the deduction allowable for the taxable year is the
deduction allowed under section 290.01, subdivision 19e.

For taxable years beginning after December 31, 2000, the amount of any remaining
modification made under section 290.01, subdivision 19e, not previously deducted is a
depreciation or amortization allowance in the first taxable year after December 31, 2004.

(12) For purposes of calculating the adjustment for adjusted current earnings in
section 56(g) of the Internal Revenue Code, the term "alternative minimum taxable
income" as it is used in section 56(g) of the Internal Revenue Code, means alternative
minimum taxable income as defined in this subdivision, determined without regard to the
adjustment for adjusted current earnings in section 56(g) of the Internal Revenue Code.

(13) For purposes of determining the amount of adjusted current earnings under
section 56(g)(3) of the Internal Revenue Code, no adjustment shall be made under section
56(g)(4) of the Internal Revenue Code with respect to (i) the amount of foreign dividend
gross-up subtracted as provided in section 290.01, subdivision 19d, clause (1), new text begin or new text end (ii) the
amount of refunds of income, excise, or franchise taxes subtracted as provided in section
290.01, subdivision 19d, clause (9)deleted text begin , or (iii) the amount of royalties, fees or other like
income subtracted as provided in section 290.01, subdivision 19d, clause (10)deleted text end .

(14) Alternative minimum taxable income excludes the income from operating in a
job opportunity building zone as provided under section 469.317.

(15) Alternative minimum taxable income excludes the income from operating in a
biotechnology and health sciences industry zone as provided under section 469.337.

(16) Alternative minimum taxable income excludes the income from operating in an
international economic development zone as provided under section 469.326.

Items of tax preference must not be reduced below zero as a result of the
modifications in this subdivision.

Subd. 6.

Dividends received.

(a) A deduction is allowed from alternative
minimum taxable net income equal to the deduction for dividends received under section
290.21, subdivision 4, for purposes of calculating taxable income under section 290.01,
subdivision 29.

(b) The amount of the deduction must not exceed 90 percent of alternative minimum
taxable net income.

This limitation does not apply to:

(1) dividends paid to or received from a corporation which is subject to tax under
section new text begin 290.341 or new text end 290.36 and which is a member of an affiliated group of corporations as
defined by the Internal Revenue Code; or

(2) dividends received from a property and casualty insurer as defined under
section 60A.60, subdivision 8, which is a member of an affiliated group of corporations
as defined by the Internal Revenue Code and either: (i) the dividend is eliminated in
consolidation under Treasury Regulation 1.1502-14(a), as amended through December
31, 1989; or (ii) the dividend is deducted under an election under section 243(b) of the
Internal Revenue Code.

Subdivision 1.

Imposition.

(a) In addition to the tax imposed by this chapter without
regard to this section, the franchise tax imposed on a corporation required to file under
section 289A.08, subdivision 3, other than a corporation treated as an "S" corporation
under section 290.9725 for the taxable year includes a tax equal to the following amounts:

(b) A tax is imposed for each taxable year on a corporation required to file a return
under section 289A.12, subdivision 3, that is treated as an "S" corporation under section
290.9725 and on a partnership required to file a return under section 289A.12, subdivision
3, other than a partnership that derives over 80 percent of its income from farming. The
tax imposed under this paragraph is due on or before the due date of the return for the
taxpayer due under section 289A.18, subdivision 1. The commissioner shall prescribe
the return to be used for payment of this tax. The tax under this paragraph is equal to
the following amounts:

new text begin (c) The commissioner shall adjust the dollar amounts of both the tax and the
property, payrolls, and sales or receipts thresholds in paragraphs (a) and (b) by the
percentage determined pursuant to the provisions of section 1(f) of the Internal Revenue
Code, except that in section 1(f)(3)(B) the word "2010" must be substituted for the word
"1992." For 2012, the commissioner shall then determine the percent change from the 12
months ending on August 31, 2010, to the 12 months ending on August 31, 2011, and in
each subsequent year, from the 12 months ending on August 31, 2010, to the 12 months
ending on August 31 of the year preceding the taxable year. The determination of the
commissioner pursuant to this subdivision is not a "rule" subject to the Administrative
Procedure Act contained in chapter 14. The tax amounts as adjusted must be rounded
to the nearest $10 amounts and the threshold amounts must be adjusted to the nearest
$10,000 amounts. For tax amounts that end in $5, the amount is rounded up to the nearest
$10 amount and for threshold amounts that end in $5,000, the amount is rounded up to
the nearest $10,000.
new text end

Subd. 2.

Exemptions.

The following entities are exempt from the tax imposed
by this section:

(1) corporations exempt from tax under section 290.05new text begin other than insurance
companies exempt under subdivision 1, paragraphs (c) and (d)new text end ;

(2) real estate investment trusts;

(3) regulated investment companies or a fund thereof; and

(4) entities having a valid election in effect under section 860D(b) of the Internal
Revenue Code;

(5) town and farmers' mutual insurance companies;

(6) cooperatives organized under chapter 308A or 308B that provide housing
exclusively to persons age 55 and over and are classified as homesteads under section
273.124, subdivision 3;

(7) an entity, if for the taxable year all of its property is located in a job opportunity
building zone designated under section 469.314 and all of its payroll is a job opportunity
building zone payroll under section 469.310; and

(8) an entity, if for the taxable year all of its property is located in an international
economic development zone designated under section 469.322, and all of its payroll is
international economic development zone payroll under section 469.321. The exemption
under this clause applies to taxable years beginning during the duration of the international
economic development zone.

Entities not specifically exempted by this subdivision are subject to tax under this
section, notwithstanding section 290.05.

Subd. 2.

Defined and limited.

(a) The term "net operating loss" as used in this
section shall mean a net operating loss as defined in section 172(c) new text begin or 810(a), in the case of
life insurance companies, new text end of the Internal Revenue Code, with the modifications specified
in subdivision 4. The deductions provided in section 290.21 deleted text begin and the modification provided
in section 290.01, subdivision 19d, clause (10),deleted text end cannot be used in the determination of a
net operating loss.

(b) The term "net operating loss deduction" as used in this section means the
aggregate of the net operating loss carryovers to the taxable year, computed in accordance
with subdivision 3. The provisions of section 172(b) of the Internal Revenue Code relating
to the carryback of net operating losses, do not apply.

Subd. 3.

Carryover.

(a) A net operating loss incurred in a taxable year: (i)
beginning after December 31, 1986, shall be a net operating loss carryover to each of the
15 taxable years following the taxable year of such loss; (ii) beginning before January 1,
1987, shall be a net operating loss carryover to each of the five taxable years following the
taxable year of such loss subject to the provisions of Minnesota Statutes 1986, section
290.095; and (iii) beginning before January 1, 1987, shall be a net operating loss carryback
to each of the three taxable years preceding the loss year subject to the provisions of
Minnesota Statutes 1986, section 290.095.

(b) The entire amount of the net operating loss for any taxable year shall be carried to
the earliest of the taxable years to which such loss may be carried. The portion of such loss
which shall be carried to each of the other taxable years shall be the excess, if any, of the
amount of such loss over the sum of the taxable net income, adjusted by the modifications
specified in subdivision 4, for each of the taxable years to which such loss may be carried.

(c) Where a corporation apportions its income under the provisions of section
290.191, the net operating loss deduction incurred in any taxable year shall be allowed
to the extent of the apportionment ratio of the loss yearnew text begin plus the excess loss assigned
by section 290.17, subdivision 2. The loss carryover is applied to income allocated to
Minnesota in the carryover yearnew text end .

(d) The provisions of sections 381, 382, and 384 of the Internal Revenue Code apply
to carryovers in certain corporate acquisitions and special limitations on net operating loss
carryovers. The limitation amount determined under section 382 shall be applied to net
income, before apportionment, in each post change year to which a loss is carried.

Subdivision 1.

Scope of allocation rules.

(a) The income of resident individuals
is not subject to allocation outside this state. The allocation rules apply to nonresident
individuals, estates, trusts, nonresident partners of partnerships, nonresident shareholders
of corporations treated as "S" corporations under section 290.9725, and all corporations
not having such an election in effect. If a partnership or corporation would not otherwise
be subject to the allocation rules, but conducts a trade or business that is part of a
unitary business involving another legal entity that is subject to the allocation rules, the
partnership or corporation is subject to the allocation rules.

(b) Expenses, losses, and other deductions (referred to collectively in this paragraph
as "deductions") must be allocated along with the item or class of gross income to which
they are definitely related for purposes of assignment under this section or apportionment
under section 290.191, 290.20, or 290.36. Deductions definitely related to any item of
gross income assigned under subdivision 2, paragraph (e), are assigned to the taxpayer's
domicile.

(c) In the case of an individual who is a resident for only part of a taxable year,
the individual's income, gains, losses, and deductions from the distributive share of a
partnership, S corporation, trust, or estate are not subject to allocation outside this state
to the extent of the distributive share multiplied by a ratio, the numerator of which is
the number of days the individual was a resident of this state during the tax year of the
partnership, S corporation, trust, or estate, and the denominator of which is the number of
days in the taxable year of the partnership, S corporation, trust, or estate.

new text begin (d) In the case of an individual who is a part-year resident as defined in section
290.01, subdivision 7, paragraph (d), income is assigned or allocated under subdivisions
2 and 3 except a pro rata share of income recognized while the individual maintains an
abode in Minnesota and is not assigned or allocated to the state under subdivision 2 or
3 is also assigned to the state. The pro rata share is the income not assigned to the state
under subdivision 2 or 3 multiplied by the ratio of the number of days physically present
in Minnesota while domiciled in another state during the tax year over the number of days
the individual maintains an abode in Minnesota while domiciled in another state.
new text end

Subd. 2.

Income not derived from conduct of a trade or business.

The income of
a taxpayer subject to the allocation rules that is not deleted text begin derived from the conductdeleted text end new text begin incomenew text end of a
trade or business must be assigned in accordance with paragraphs (a) to (f):

(a)(1) Subject to paragraphs (a)(2) and (a)(3), income from wages as defined in
section 3401(a) and (f) of the Internal Revenue Code is assigned to this state if, and to the
extent that, the work of the employee is performed within it; all other income from such
sources is treated as income from sources without this state.

Severance pay shall be considered income from labor or personal or professional
services.

(2) In the case of an individual who is a nonresident of Minnesota and who is an
athlete or entertainer, income from compensation for labor or personal services performed
within this state shall be determined in the following manner:

(i) The amount of income to be assigned to Minnesota for an individual who is a
nonresident salaried athletic team employee shall be determined by using a fraction in
which the denominator contains the total number of days in which the individual is under
a duty to perform for the employer, and the numerator is the total number of those days
spent in Minnesota. For purposes of this paragraph, off-season training activities, unless
conducted at the team's facilities as part of a team imposed program, are not included in
the total number of duty days. Bonuses earned as a result of play during the regular season
or for participation in championship, play-off, or all-star games must be allocated under
the formula. Signing bonuses are not subject to allocation under the formula if they are
not conditional on playing any games for the team, are payable separately from any other
compensation, and are nonrefundable; and

(ii) The amount of income to be assigned to Minnesota for an individual who is a
nonresident, and who is an athlete or entertainer not listed in clause (i), for that person's
athletic or entertainment performance in Minnesota shall be determined by assigning to
this state all income from performances or athletic contests in this state.

(3) For purposes of this section, amounts received by a nonresident as "retirement
income" as defined in section (b)(1) of the State Income Taxation of Pension Income
Act, Public Law 104-95, are not considered income derived from carrying on a trade
or business or from wages or other compensation for work an employee performed in
Minnesota, and are not taxable under this chapter.

(b) Income or gains from tangible property located in this state that is not employed
in the business of the recipient of the income or gains must be assigned to this state.

(c) Income or gains from intangible personal property not employed in the business
of the recipient of the income or gains must be assigned to this state if the recipient of the
income or gains is a resident of this state or is a resident trust or estate.

Gain on the sale of a partnership interest is allocable to this state in the ratio of the
original cost of partnership tangible property in this state to the original cost of partnership
tangible property everywhere, determined at the time of the sale. If more than 50 percent
of the value of the partnership's assets consists of intangibles, gain or loss from the sale
of the partnership interest is allocated to this state in accordance with the sales factor of
the partnership for its first full tax period immediately preceding the tax period of the
partnership during which the partnership interest was sold.

Gain on the sale of an interest in a single member limited liability company that
is disregarded for federal income tax purposes is allocable to this state as if the single
member limited liability company did not exist and the assets of the limited liability
company are personally owned by the sole member.

Gain on the sale of goodwill or income from a covenant not to compete that is
connected with a business operating all or partially in Minnesota is allocated to this state
to the extent that the income from the business in the year preceding the year of sale was
assignable to Minnesota under subdivision 3.

When an employer pays an employee for a covenant not to compete, the income
allocated to this state is in the ratio of the employee's service in Minnesota in the calendar
year preceding leaving the employment of the employer over the total services performed
by the employee for the employer in that year.

(d) Income from winnings on a bet made by an individual while in Minnesota is
assigned to this state. In this paragraph, "bet" has the meaning given in section 609.75,
subdivision 2, as limited by section 609.75, subdivision 3, clauses (1), (2), and (3).

(e) All items of gross income not covered in paragraphs (a) to (d) and not part of the
taxpayer's income from a trade or business shall be assigned to the taxpayer's domicile.

(f) For the purposes of this section, working as an employee shall not be considered
to be conducting a trade or business.